Health Care Reform Memo: October 3, 2011 Deloitte Center for Health Solutions publication

The health care reform memos are issued on a weekly basis, highlighting news from the previous week's activities in the administration and implications for the C-suite and various stakeholder groups.

My take 

From Paul Keckley, Executive Director, Deloitte Center for Health Solutions

Last week, the U.S. Department of Justice (DOJ) asked the Supreme Court to expedite its anticipated ruling about the constitutionality of the individual mandate in the Affordable Care Act (ACA). A week prior, September 13, a Pennsylvania District Court ruled that forcing Americans to buy health insurance is unconstitutional (Goudy-Bachman et al v. United States Department of Health and Human Services et al). Judge Christopher Conner of the U.S. District Court for the Middle District of Pennsylvania in Scranton wrote "The [individual mandate] provision of the [Affordable Care Act] exceeds Congress's authority under the Commerce Clause. Congress cannot mandate or regulate in anticipation of conduct that may or may not occur in the future."

Judge Conner’s opinion was preceded a week earlier by a ruling in the Fourth Circuit (Virginia vs. Sebelius) concluding that concluded the state did not have standing to challenge the mandate.

The issue of the individual mandate is complicated. To date, more than 26 legal proceedings have been initiated to test it against legal precedent in our Republic. Its complexity goes beyond the question of commerce clause (Article I, Section 8, Clause 3 of the U.S. Constitution). It boils down to three questions the legal system will wrestle in coming weeks:

1. Is health care different than other industries? And does the federal government have the right to require a purchase?
2. Does requiring a purchase from a private entity in advance of the actual purchase violation of the anti-injunction clause of the constitution?
3. And might the potential deletion of the individual mandate in ACA render the whole law unconstitutional and prompt parties to go back to the drawing board?

Practically, the individual mandate is the economic foundation for the law’s provisions requiring health insurance plans, medical device and pharmaceutical companies, and hospitals to “pay back” more than $400 billion (ten years) in exchange for the promise that up to 16,000,000 currently uninsured adults would buy insurance, thus expanding the revenue stream into the system. ACA architects deemed the mandate a net plus for the industry, and it reasoned they should share in its funding. So the suspense about the legal destiny of the individual mandate is a bitter pill for the industry since it is required to pay new taxes/fees or absorb payment cuts without the assurance of the mandate.

For consumers, the country seems deeply divided based on a person’s overall view about the role of government:

• Nearly 40 percent say the government should require every individual in the country to have health insurance; slightly more than 40 percent oppose the individual mandate. The remaining 20 percent are unsure. These findings echo those of 2010 (42 percent “yes,” 38 percent “no,” and 20 percent “unsure”).
• Uninsured consumers are less likely to support an individual mandate than insured consumers (30 percent vs. 41 percent); more than half of uninsured Boomers (50 percent) opposed the mandate.

Should the government require that every individual in the country have health coverage?

Source: “Public View of Health Reform”, Deloitte Center for Health Solutions, September 2011

In my view, an expeditious resolution of the individual mandate makes practical sense for all parties concerned. It allows the industry to plan with increased certainty, and it allows policymakers to craft alternative legislation if the mandate is thrown out—perhaps a state mandate like Massachusetts or a tax credit for employers who subsidize insurance costs for “young invincibles” inclined not to buy.

It’s a sticky issue. Like everything in this industry, simple answers are not easily found. Perhaps that’s why tough issues like end-of-life care, evidence-based practice, the right balance between sticks and carrots to encourage healthy behavior, and others often escape rational discussion and fall prey to sound bites.

Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions

Implementation update

Constitutional challenge update

Wednesday, the DOJ, the National Federation of Independent Business (NFIB), and 26 states petitioned the U.S. Supreme Court to accelerate hearing their lawsuit seeking the overturn of ACA. In August, the 11^th Circuit Court of Appeals ruled the ACA’s individual mandate unconstitutional, but did not strike down the entire law. It is likely that the Supreme Court could hear the case during the 2012 election cycle if the Supreme Court decides to take the case this fall.

Note: The DOJ also asked the court to examine whether application of the Tax Anti-Injunction Act that requires Americans to pay a tax before they can challenge it in court might preclude a ruling before 2015 per the 4^th Circuit Court of Appeals conclusion it could not rule on the individual mandate as a result of the Anti-Injunction Act.

Health insurance exchange rule comment period extended; essential health benefits expected this week

Tuesday, the Center for Consumer Information and Insurance Oversight (CCIIO) extended the deadline for comments on health insurance exchange proposed regulations to October 31. Separately, the Institute of Medicine (IOM) announced that its report on the determination of the essential health benefits will be released October 7.

ACA funding released for primary care, chronic, lifestyle, and workplace wellness programs

In recent weeks, increased focus on primary care and preventive health is evident in U.S. Department of Health and Human Services (HHS) grants authorized under ACA:

• Grants to states for chronic diseases programs: Tuesday, HHS announced grants of $103 million to 61 states and communities to address chronic disease. Funding was provided through Community Transformation Grants (per ACA Section 4201). The grants are expected to run for five years. Grantees will focus on: 1) tobacco-free living; 2) active living and healthy eating; and 3) quality clinical and other preventive services, specifically prevention and control of high blood pressure and high cholesterol. Note: Chronic diseases account for 75 percent of U.S. health care costs and seven out of ten deaths. Half of the U.S. adult population has at least one chronic condition.
• Community-based primary care: Thursday, HHS announced awards of $47 million (per ACA Section 4002) to 900 community health centers and community-based organizations for improvements to the quality and coordination of health care services. HHS’s Health Resources and Services Administration (HRSA) awarded $32 million through its Quality Improvement and Patient-Centered Medical Home Development Grants; HHS’s Substance Abuse and Mental Health Services Administration (SAMHSA) awarded $15 million through its Primary and Behavioral Health Integration awards
• In a related announcement Wednesday, HHS launched the Comprehensive Primary Care (CPC) initiative—“a multi-payer initiative fostering collaboration between public and private health care payers to strengthen primary care.” The Centers for Medicare & Medicaid (CMS) will pay participating primary care practices a monthly fee in addition to the usual Medicare fees for activities that better coordinate primary care
• Childhood Obesity Demonstration Project: Thursday, the Centers for Disease Control and Prevention (CDC) launched a four-year demonstration project that will use primary care and public health to address childhood obesity. ACA Section 4306 provides $25 million for the Childhood Obesity Demonstration project. The project will promote children’s healthy eating and active living. The project targets children ages two to 12 covered by the Children’s Health Insurance Program (CHIP). CHIP provides public health coverage to over seven million children from working families. CDC will release findings and provide recommendations to prevent obesity among underserved children in the U.S when the project ends in September 2015.
• Workplace health programs: Friday, the CDC announced awards of $9 million for workplace health programs across the nation per ACA Section 4002. The funds target workplace efforts to improve healthy lifestyles sponsored by employers.

PCORI announces grants for comparative effectiveness research

Wednesday, the Patient-Centered Outcomes Research Institute (PCORI) announced it will award 40 grants totaling $26 million over the next two years to engage organizations in its comparative effectiveness research effort.

Note: Per ACA Section 6301, PCORI is an independent non-government organization that will enable patients, clinicians, purchasers, and policy makers to “make better informed health decisions” by commissioning clinical research and providing mechanisms so consumers can understand treatment choices based on evidence. It is governed by a 21-person board—19 appointed by the Government Accountability Office (GAO) to six-year terms starting September 23, 2010 plus the Directors of the Agency for Health Care Research and Quality (AHRQ) and the National Institutes of Health (NIH). In addition, a 15-person Methodology Committee will advise about methods whereby traditional and non-traditional studies of diagnostics and therapeutics will be considered.

CMS launched Medicare Plan finder website

Saturday, October 1, individuals may access their Medicare plan benefit and cost information on CMS’s web-based Medicare Plan Finder at (www.Medicare.gov). The tool allows enrollees, their families, trusted representatives, and senior program advocates to examine local drug and health plan options available for the 2012 benefit year.

GAO: cost impact of ACA requirements on military health

A report published Monday by the GAO concluded the Department of Defense (DOD) expects to “incur minimal costs to implement the 21 ACA provisions with which department officials have determined it is required to comply.” Eleven of the provisions could be implemented at no cost, while costs to implement the remaining eight are minimal because no new staff or significant additional resources will be required to implement them The requirement that adults up to the age of 26 be allowed to remain on their parents' health plan would cost Defense about $4.4 million over two years to be covered by raising premiums “DOD Health Care: Cost Impact Of Health Care Reform And The Extension Of Dependent Coverage.” (Source: www.gao.gov/products/GAO-11-837R)

Legislative update

Cuts to ACA funding proposed by House GOP committee

Thursday, the GOP House members released their draft of the $153.4 billion 2012 Labor, Health and Human Services and Education spending bill. It cut funding for CCIIO ($8 billion) and the recently disbanded office in charge of setting up the controversial Community Living Assistance Services and Supports program (CLASS) program. The committee's draft fiscal 2012 Labor and HHS bill included about $70.2 billion in new discretionary budget – 4 percent less ($2.8 billion) than the President’s budget requested in his fiscal 2012 budget.

AHA promoting increase in Medicare eligibility age in lieu of across-the-board cuts

Local health system leaders will visit Congress Tuesday as part of the American Hospital Association’s (AHA) campaign to urge legislators to consider increasing the Medicare eligibility age from 65 to 67 rather than cut payments to hospitals.

HHS data collection on CHIP

Last Monday, HHS announced it will survey and collect information about the structure and impact of CHIP. HHS will draw on three new primary data collection efforts, including a survey of selected CHIP enrollees and disenrollees in ten states (and Medicaid enrollees and disenrollees in three of these states), qualitative case studies in the ten states, and a survey of State Program Administrators in all 50 states and DC, enrollees and disenrollees in three of these states), qualitative case studies in the ten states, and a survey of State Program Administrators in all 50 states and DC.

State update

Supreme Court to hear case about enrollee challenge to Medicaid payment cuts

Today, the U.S. Supreme Court opens its new term hearing a case about the right of individuals and providers to sue a state over Medicaid provider payment cuts. The case, Douglas v. Independent Living Center of Southern California, was brought by California providers and Medicaid beneficiaries after the state proposed a 10 percent payment cut for its Medi-Cal Medicaid program in 2008. The administration and 22 states support California’s position that individuals do not have a private right of action to challenge public benefits under the law.

Note: The case will be closely watched by states and HHS. A ruling in favor of California could limit challenges against states who fail to meet ACA requirements; a ruling in favor of the plaintiffs might precipitate challenges every state and slow the implementation of Medicaid expansion provisions of ACA.

CMS awards $1.5 million to State Health Insurance Assistance Programs

Friday, CMS awarded $1.5 million in State Health Insurance Assistance Programs (SHIPs) performance awards to local agencies that provide counseling services to Medicare beneficiaries through “innovative outreach efforts.”

State implementation efforts

• Wisconsin created a new website to help consumers understand proposed cuts to the state’s Medicaid program.
• Washington lawmakers announced a plan to limit Medicaid coverage of emergency room visits for non-emergency care to three visits per year saving the state $35 million annually.

Industry news

Medical informatics new specialty recognized by ABMS

Last week, the American Board of Medical Specialties (ABMS) officially recognized clinical informatics (CI) as a subspecialty with certification likely to start in early 2013 based on core competencies developed by the American Medical Informatics Association (AMIA). “CI sits at the intersection of clinical care, information systems, and the health system overall to drive everything from decision-support and process reengineering to predictive modeling and strategic planning. By making it a medical subspecialty, the ABMS seeks to ensure that practitioners have an appropriate background in patient care, while concurrently raising the visibility of CI in medical training… We have embarked on a path toward creating an information-driven, evidenced-based, and outcomes-focused healthcare system. As EHR [electronic health record] incentives drive adoption and health information exchanges connect patients, providers, payers, and researchers, a key question arises: how can we make sense out of all this data? Transforming a system requires sophisticated analytics to drive better decision-making in the hands of clinicians capable of applying this knowledge to improve care” per Harry Greenspun, MD, Deloitte Center for Health Solutions’ Senior Advisor, Health Care Transformation and Technology.

Meaningful use update

Friday was the last day that “eligible professionals” could start their 90-day reporting period for the Medicare EHR Incentive Program for calendar year (CY) 2011 to qualify for meaningful use incentives. As of August 2011, 71,499 providers are registered in the Medicare EHR program. The program has provided about $264.3 million in incentive payments. Per the Office of the National Coordinator for Health Information Technology (ONC) website:

“For the purposes of the Medicare and Medicaid Incentive Programs, eligible professionals, eligible hospitals and critical access hospitals (CAHs) must use certified EHR technology. Certified EHR technology gives assurance to purchasers and other users that an EHR system or module offers the necessary technological capability, functionality, and security to help them meet the meaningful use criteria. Certification also helps providers and patients be confident that the electronic health IT products and systems they use are secure, can maintain data confidentially, and can work with other systems to share information. For more information about which EHR systems and modules are certified for the Medicare and Medicaid EHR Incentive.”

Kaiser survey: employer premiums increased 8 percent to 9 percent in 2011

Tuesday, Kaiser Family Foundation released its Employer Health Benefits Survey concluding 2011 premiums will be 8 percent higher for single coverage and 9 percent higher for family coverage than 2010. In 2010, premiums increased 3 percent. The average annual premiums for employer-sponsored health insurance in 2011 are $5,429 (single coverage) and $15,073 (family coverage). Other findings:

• 72 percent of firms had at least one “grandfathered” health plan. ACA exempts “grandfathered” health plans from certain insurance market reform requirements.
• 23 percent of workers are in a plan where the employer changed the cost-sharing requirements to ensure that beneficiaries receive free preventive care (per ACA Section 1001).
• 9 percent of small firms and 70 percent of large firms enrolled at least one dependent young adult dependent in a plan (per ACA Section 1001).
• 29 percent of firms with less than 50 employees attempted to determine if they were eligible for the small employer tax credit (per ACA Section 1421); 30 percent of these firms intend to claim the credit for 2011.

Source: Kaiser Employer Health Benefits 2011 Summary of Findings

CMS proposes five new measures in HCAHPS program for hospitals

CMS is proposing five new measures to the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey: three that comprise a Care Transitions composite, one that asks whether the patient was admitted through the emergency room, and one that asks about the patient's overall mental health. Comments on the proposed changes are due November 22.

Note: inpatient acute hospitals that do not publicly report required quality measures including the HCAHPS survey risk having their Medicare payment updates reduced by 2 percent. Also, HCAHPS measures will be used to calculate value-based incentive payments in the Hospital Value-Based Purchasing (VBP) program (per ACA Section 3001) starting with discharges in October 2012. 30 percent of a hospital's VBP score will be based on the survey.

Medical device outlook mixed: domestic price pressures increasing, risk contracting with providers sought

Last week, AdvaMed held its annual MedTech convention in Washington, DC, featuring speeches by President George W. Bush, Governors Mitch Daniels (Indiana) and Martin O’Malley (Maryland), the U.S. Food and Drug Administration’s (FDA) Director for the Center for Devices and Radiological Health Jeffery Shuren, and HHS Secretary Kathleen Sebelius, among others. Consensus among the device manufacturers is that the U.S. economic downturn and downward pressures on health costs will sustain a challenging domestic market for the industry while global opportunities will continue to expand. Nonetheless, demand in both is increasing though domestic pricing pressures poses a challenge. In response, manufacturers anticipate increased participation in value-based purchasing, bundled payment and gain-sharing programs with providers. Notable quotes:

“What keeps me up at night is the uncertainty. Most of the key regulations haven’t been released. We don’t know what is going to be repealed and what’s not. How are ACOs [accountable care organizations] going to work? Will bundled payments work? Leading hospitals have said they are not going to participate in the ACO program. Doesn’t that worry you? It worries me.” – Caroll Neubauer, CEO of B. Braun Medical, September 26, AdvaMed 2011 Deloitte Health Reform Panel

“America continues to lead the world in medical technology, not in spite of tough standards, but because of tough standards….The medical device sector is also one of the few areas of the American economy that consistently run a trade surplus and where exports continue to grow. Last year, medical device exports measured $47.3 billion – a 38 percent gain over 2005 levels. And with health care spending continuing to grow around the world, the Commerce Department projects that the growth of exports will continue at an annual rate of 5 to 10 percent.” – HHS Secretary Kathleen Sebelius, September 28, AdvaMed 2011 Keynote

Quotable

Controlling costs without compromising quality will require multiple scalpels rather than one blunt instrument. Public reporting of performance measures could provide those scalpels by allowing the public to compare doctors and hospitals based on costs and clinical results

 – George Shultz, Arnold Milstein, Robert Krughoff “More Transparency, Better Health Care” Wall Street Journal September 20, 2011

The three reforms I’ve just outlined – premium support for Medicare, block grants for Medicaid, and tax reform to correct the inefficient tax treatment of health insurance – must be present in our “replace” agenda. If we end up with a replace agenda that fails to fix the problem, then we will lose hard-won credibility on the health-care issue as a result.”

 – Representative Paul Ryan (R-WI), September 27 at the Hoover Institution, Stanford University

“Developing innovative treatments and cures is a time- and capital-intensive endeavor reliant on private investment. It generally costs over $1 billion and 8-10 years to research and develop an FDA-approved drug…There are several troubling trends that threaten…our ability to innovate…only half of the products submitted to the FDA are approved on the first submission. From the average of the previous PDUFA rounds of 2003-2007 to today, drug and biologics approval times have increased 28 percent. Between 1999 and 2005, the average length of clinical trials grew by 70 percent. And despite the extraordinary advances in science and huge increases in research and development spend over the last two decades, the number of new drug approvals per year remains flat (i.e., an average of 23 NME approvals per year over the past decade).”

 – Steven J. Mento, Ph.D, Co-Founder, President and CEO of Conatus Pharmaceuticals Inc., September 26 testimony at the Energy and Commerce health subcommittee hearing on medical devices

Fact file

• 26 million are currently diagnosed as Type 2 diabetics in the U.S.; risk increases per five habits: (Source: NIH, CDC)

• Grad school enrollment: 09 to 10: +8.4 percent increase in applications, 1.1 percent increase overall (vs. +5.5 percent 08-09) to 1.75M but flat for U.S. residents. (Source: Council of Graduate Schools)
• 1.4 million new immigrants in the U.S. in 2010 vs. 556,000 in 2009. (Source: U.S. Census Bureau)
• US: 6 percent decline in births among women aged 20-34 from 2008 to 2010. (Source: CDC)
• In 15 U.S. markets (MSAs), the poverty rate is above 10 percent. (Source: U.S. Census Bureau)
• 28.2 percent of the U.S. population has a college degree with median income of $50,046. (Source: Council of Graduate Education)
• The Part D prescription drug program (Medicare Modernization Act) is costing 41 percent less than originally estimated; the average enrollee has options in 28 drug plans; 90 percent have chosen a private option. (Source: HHS)
• 57 million Americans depend on specialty drugs; prices rose 19.6 percent in 2010 vs. 1.4 percent for branded drugs. (Source: PhaRMA)
• One in 20 hospital patients will acquire an infection in the hospital resulting in 100 deaths and $45 billion in costs. (Source: AHA)
• National debt held by public – $11.7 trillion (74.8 percent of GDP). (Source: Federal Reserve)
• 33 percent of pre-retirees and 36 percent of retirees say that waiting two more years to receive Medicare benefits would be a major problem for them and their family. (Source: National Public Radio, Robert Wood Johnson Foundation, and Harvard School of Public Health, “Retirement and Health Poll”, September 27, 2011)
• The rate of preventable deaths decreased for those under age 75 in 16 high-income countries between 1997–1998 and 2006–2007. All countries showed improvement; U.S. improved the least. Study included: Australia, Austria, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, New Zealand, Norway, Sweden, the United Kingdom (UK), and the U.S. (Source: Commonwealth Fund, “Variations in Amenable Mortality—Trends in 16 High-Income Nations”, September 23, 2011)
• Readmissions update:
  • Avoidable readmissions cost Medicare $17.4 billion annually. (Source: Stephen F. Jencks et al. “Rehospitalizations among Patients in the Medicare Fee-for-Service Program,” New England Journal of Medicine, April 2, 2009)
  • Surgical 30-day readmission rates were 12.7 percent in both 2004 and 2009, while medical 30-day readmission rates were 15.9 percent in 2004 and rose slightly to 16.1 percent in 2009. (Source: Dartmouth Atlas Project, “After Hospitalization: A Dartmouth Atlas Report on Post-Acute Care for Medicare Beneficiaries, September 28, 2011)
  • Those hospitalized with a diagnosis of heart attack, heart failure, or pneumonia have a 20 percent chance on average of being readmitted within 30 days of their initial discharge. (Source: Consumer Reports, September 26, 2011)

National health reform: What now? National health reform is here. The health reform bills (HR3590 and HR4872) are now law and will trigger sweeping changes and disruptions – some rather quickly and some over many years. The industry is asking, “What now?” At Deloitte, we continue to explore and debate the key questions facing the industry, and we look forward to helping our clients find and implement the right answers for their organizations. To learn more, visit www.deloitte.com/us/healthreform/whatnow today.

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